-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OajtjSw0074H75f5V//84d84xFzifAbVp1s/BuKG2o9s64zELR5Ophl869DORrQ2 vSNOnso0wNoJkGhhOJf7wA== 0000950128-04-000610.txt : 20040614 0000950128-04-000610.hdr.sgml : 20040611 20040614153055 ACCESSION NUMBER: 0000950128-04-000610 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20040614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUIDYNE CORP CENTRAL INDEX KEY: 0000352281 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042608713 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-16283 FILM NUMBER: 04861387 BUSINESS ADDRESS: STREET 1: STE 1620 BURRARD ST STREET 2: VANCOUVER BRITISH COLUMBIA CITY: CANADA STATE: A1 ZIP: V6C9A6 BUSINESS PHONE: 6046835767 MAIL ADDRESS: STREET 1: STE 1620 BURRARD ST STREET 2: VANCOUVER BRITISH COLUMBIA CITY: CANADA STATE: A1 ZIP: V6C9A6 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN ELECTROMEDICS CORP DATE OF NAME CHANGE: 19920703 10QSB 1 j0805601e10qsb.txt EQUIDYNE CORP. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ____ to _____ COMMISSION FILE NUMBER 0-9922 --------------- EQUIDYNE CORPORATION (Name of Small Business Issuer in Its Charter) DELAWARE 04-2608713 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 3604 Tower 1, Kerry Everbright City, 218 Tian Mu Road West, Shanghai, P.R. China 200070 (Address of office) (Zip Code) Issuer's telephone number, including area code: 86-21-6353-0012 Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO The number of shares outstanding of the Company's common stock as at June 3 , 2004 was 15,634,829. Transitional Small Business Disclosure Format (check one): [ ] YES [X] NO EQUIDYNE CORPORATION AND SUBSIDIARIES QUARTERLY REPORT - FORM 10-QSB THREE AND NINE MONTHS ENDED APRIL 30, 2004 TABLE OF CONTENTS
PART I PAGE ------------------------------------------------------------------- ----- Item 1. Consolidated Financial Statements 3 Item 2. Management's Discussion and Analysis or Plan of Operation 9 Item 3. Controls and Procedures 10 PART II Item 1. Legal Proceedings 11 Item 2. Changes in Securities and Use of Proceeds 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 13
FORWARD LOOKING STATEMENTS Certain statements contained in this Quarterly Report and other written material and oral statements made from time to time by us do not relate strictly to historical or current facts. As such, they are considered "forward-looking statements" that provide current expectations or forecasts of future events. Such statements are typically characterized by terminology such as "believe," "anticipate," "should," "intend," "plan," "will," "expect," "estimate," "project," "strategy" and similar expressions. Our forward-looking statements generally relate to the prospects for our ability to identify new business opportunities, develop new business strategies and execute such business strategies. These statements are based upon assumptions and assessments made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors our management believes to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including the following: our ability to identify and evaluate business opportunities that will achieve profitable operations while maintaining sufficient cash to operate our business and meet our liquidity requirements: our ability to obtain financing, if required, on terms acceptable to us, if at all; our ability to successfully attract strategic partners and to market both new and existing products and services domestically and internationally; exposure to lawsuits and regulatory proceedings; governmental laws and regulations affecting domestic and foreign operations; our ability to identify and complete diversification opportunities; and the impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual items. Except as required by applicable law, the Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. 2 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS EQUIDYNE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
APRIL 30, JULY 31, 2004 2003 ---- ---- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents $ 10,599 $ 9,517 Accounts receivable, net -- 7 Inventories, net -- 66 Deferred costs -- 10 Refundable income taxes 3,611 6,441 Prepaid and other current assets 311 59 -------- -------- Total current assets 14,521 16,100 Property and equipment, net -- 50 Deposits -- 5 Patents, net -- 490 -------- -------- Total assets $ 14,521 $ 16,645 ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 316 $ 450 Accrued liabilities 914 913 Due to a related party 6 -- Accrued income taxes 2,331 2,331 Deferred revenue -- 12 -------- -------- Total current liabilities 3,567 3,706 Commitments and contingencies Stockholders' Equity: Common stock 1,713 1,648 Additional paid-in capital 26,744 26,593 Accumulated deficit (12,190) (9,989) Treasury stock, at cost (5,313) (5,313) -------- -------- Total stockholders' equity 10,954 12,939 -------- -------- Total liabilities and stockholders' equity $ 14,521 $ 16,645 ======== ========
See accompanying notes. 3 EQUIDYNE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED APRIL 30, --------- 2004 2003 ---- ---- Net sales $ 39 $ 65 Cost of goods sold 74 70 ------- ------- Gross loss (35) (5) Selling, general and administrative expenses 2,417 2,358 Research and development -- 212 ------- ------- Total operating expenses 2,417 2,570 ------- ------- Operating loss (2,452) (2,575) Other income (expense): Interest and other 22 108 Gain (loss)on sale of property and equipment 229 (9) ------- ------- 251 99 ------- ------- Loss before income tax benefit (2,201) (2,476) Income tax benefit -- (738) ------- ------- Net loss $(2,201) $(1,738) ======= ======= Net loss per common share, basic and diluted $ (0.14) $ (0.12) ======= =======
See accompanying notes. 4 EQUIDYNE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED APRIL 30, --------- 2004 2003 ---- ---- Net sales $ -- $ 14 Cost of goods sold -- 19 ------ ------ Gross loss -- (5) Selling, general and administrative expenses 373 643 Research and development -- 41 ------ ------ Total operating expenses 684 ------ ------ Operating loss (373) (689) Other income: Interest and other 8 31 Gain on sale of property and equipment -- 2 ------ ------ 8 33 ------ ------ Loss before income tax benefit (365) (656) Income tax benefit -- (197) ------ ------ Net loss $ (365) $ (459) ====== ====== Net loss per common share, basic and diluted $(0.02) $(0.03) ====== ======
See accompanying notes. 5 EQUIDYNE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED APRIL 30, --------- 2004 2003 ---- ---- OPERATING ACTIVITIES: Net loss $ (2,201) $ (1,738) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 35 194 Deferred income taxes -- (743) (Gain) loss on sale of property and equipment (229) 9 Changes in operating assets and liabilities: Accounts receivable 7 39 Refundable income taxes 2,830 -- Inventories 66 88 Other assets (237) (46) Due to a related party 6 -- Accounts payable and other current liabilities (145) (695) -------- -------- Net cash provided by (used in) operating activities 132 (2,892) INVESTING ACTIVITIES: Proceeds from sale of property and equipment 734 7 Purchase of property and equipment -- (21) -------- -------- Net cash provided by (used in) investing activities 734 (14) FINANCING ACTIVITIES: Proceeds from exercise of stock options 216 -- -------- -------- Net cash provided by financing activities 216 -- -------- -------- Increase (decrease) in cash and cash equivalents 1,082 (2,906) Cash and cash equivalents, beginning of period 9,517 13,092 -------- -------- Cash and cash equivalents, end of period $ 10,599 $ 10,186 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ -- $ 293
See accompanying notes. 6 EQUIDYNE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Equidyne Corporation (the "Company") is a holding company, which since its formation in 1977, has invested in various medical device companies and technologies. From January 1999 until January 2004, the Company had principally focused on the development of patented, needle-free drug delivery systems, principally the reusable INJEX(TM) System. In early 2002, the Company's executive management evaluated the Company's technologies, markets and production capabilities and concluded that a change in the strategic focus of the Company was necessary as the Company's production capabilities were not cost effective nor were its sales and marketing programs generating satisfactory results. The Company has since this time been in the process of evaluating strategic alternatives both within and outside of the medical products industry. In September 2003, after seeing the Company's executive management make little progress on developing the Company's needle-free business or other diversification opportunities, the stockholders of the Company voted to change the Board of Directors and executive management. As a result, the previous executive management team was replaced by the new Board of Directors. The new Board of Directors had three principal objectives: 1) minimize operating expenses; 2) further evaluate and realize value from its existing needle-free technologies; and 3) seek new business opportunities, investments and acquisitions not necessarily in the medical device field. On January 6, 2004, Equidyne Systems, Inc. ("ESI"), a wholly owned subsidiary of Equidyne Corporation, sold all its right, title and interest in and to its needle-free technologies to HNS International Inc. ("HNS"). The purchase price for this transaction was $750,000 in cash. On April 26, 2004, the Company acquired all the stock of Cathay Merchant Group Limited ("CMG") to pursue merchant banking projects in China, including but not limited to, trade finance, representation of American and European companies with respect to Chinese investments, and strategic investments for its own behalf and on behalf of clients. The purchase price for this transaction was $50,000 in cash. The purchase was not deemed material to the consolidated financial statements. In order to provide a possible source of funding for the international merchant banking activities of CMG, the Company has entered into a five-year $20.0 million Revolving Credit Facility (the "Facility") with MFC Merchant Bank, S.A.("MFC"). The Company has a common director with MFC's parent company. Under the terms of the Facility, the Company may borrow from MFC up to $20.0 million from time to time until the maturity date of March 31, 2009. As of April 30, 2004, the Company has not drawn from the facility. The interest rate on all outstanding amounts under the Facility is the one-month London Inter-Bank Offered Rate plus 3.5%. Additionally, the Company is required to pay an unused line fee of 0.75% per year on the daily average of the unused amount of the credit facility commitment during the term. The Company also agreed to pay MFC an arrangement fee of $400,000. The proceeds from such borrowings must be used for general corporate purposes, working capital needs, and in connection with acquisitions. All outstanding amounts must be repaid by March 31, 2009. The Facility is secured by a pledge agreement, pursuant to which the Company has pledged to MFC all of its existing and future pecuniary claims against third parties. In addition, the Company has granted a security interest in all of the Company's current and future property and assets. At any time during the term of the Facility, MFC may convert all available amounts (whether or not actually borrowed) under the Facility into shares of the Company's common stock. The conversion price is equal to the ten-day trailing average of the closing price per share of the Company's common stock immediately prior to conversion. Under the rules of the American Stock Exchange, the Company must obtain stockholder approval of any transaction, other than a "public offering" involving the sale, issuance or potential issuance of its common stock (or securities convertible into common stock) equal to 20% or more of its presently outstanding stock for less than the greater of book or market value of the stock. Under the terms of the Facility, the maximum number of shares into which the Facility can be converted is equal to 19.9% of the Company's outstanding stock at the time of such conversion unless the Company obtains stockholder approval for shares in excess of such amount. The Company has agreed to use its best effort to obtain stockholder approval permitting MFC to convert the line of credit into 20% or more of the Company's outstanding common stock. The Company reserves 20,000,000 common stock for the facility. 7 In order to complete the proposed business plan for the international merchant banking activities, the Company believes that additional capital will be required. The Company is considering a number of financing alternatives. Basis of Presentation The interim period consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. The interim period consolidated financial statements should be read together with the audited consolidated financial statements and accompanying notes included in the Company's latest annual report on Form 10-KSB for the fiscal year ended July 31, 2003. In the opinion of the Company, the unaudited consolidated financial statements contained herein contain all adjustments necessary to present a fair statement of the results of the interim periods presented. The results for the periods presented herein may not be indicative of the results for any subsequent period or the entire year. 2. LOSS PER SHARE Basic loss per share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the effect of dilutive securities, if any, principally stock options and warrants. Dilutive securities were not included in the calculation of diluted weighted average shares for the nine months and three months ended April 30, 2004 and 2003, due to their anti-dilutive effect. The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED APRIL 30, APRIL 30, --------- --------- 2004 2003 2004 2003 ---- ---- ---- ---- Net loss $ (365) $ (459) $ (2,201) $ (1,738) ======= ======= ========= ======== Weighted-average shares 15,635 14,985 15,502 14,985 ======= ======= ========= ======== Net loss per share (Basic and Diluted) $ (0.02) $ (0.03) $ (0.14) $ (0.12) ======= ======= ========= ========
3. STOCK-BASED COMPENSATION In accordance with Statement of the Financial Accounting Standards Board No. ("FAS") 123, "Accounting for Stock-Based Compensation", the Company accounts for its two stock option plans and other stock-based employee compensation using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, as described more fully in the Company's annual report on Form 10KSB for the year ended July 31, 2003. Accordingly, compensation expense is recorded on the date of grant only to the extent the current market price of the underlying stock exceeds the option exercise price. The Company did not record any stock-based compensation expense in the nine months ended April 30, 2004 and 2003. Had compensation expense been determined based on the fair values at dates of grant for its stock options under FAS 123, as amended by FAS 148, net loss and net loss per share would have been reported as indicated in the pro forma results below (in thousands, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED APRIL 30, APRIL 30, --------- --------- 2004 2003 2004 2003 ---- ---- ---- ---- Net loss, as reported $ (365) $ (459) $(2,201) $(1,738) Deduct: Stock-based employee compensation expense determined under fair value based method -- (95) (507) (286) ------ ------ ------- ------- Pro forma net loss $ (365) $ (554) $(2,708) $(2,024) ====== ====== ======= ======= Net loss per share, as reported $(0.02) $(0.03) $ (0.14) $ (0.12) ====== ====== ======= ======= Net loss per share, pro forma $(0.02) $(0.04) $ (0.17) $ (0.14) ====== ====== ======= =======
8 The fair values under FAS 123 for options granted were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
2004 2003 ---- ---- Expected life (years) 3 3 Interest rate 4.0% 4.0% Volatility 0.95 0.95 Dividend yield 0.0% 0.0%
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OVERVIEW The Company is a holding company, which since its formation in 1977 until January 2004, had invested in various medical device companies and technologies. In September 2003, after seeing the Company's executive management make little progress on developing the Company's needle-free business or other diversification opportunities, the stockholders of the Company overwhelmingly voted to change the Board of Directors and executive management. As a result, the previous executive management team was replaced by the new Board of Directors. The new Board of Directors had three principal objectives: 1) minimize operating expenses; 2) further evaluate and realize value from its existing needle-free technologies; and 3) seek new business opportunities, investments and acquisitions not necessarily in the medical device field. On January 6, 2004, Equidyne Systems, Inc. ("ESI"), a wholly owned subsidiary of Equidyne Corporation, sold all its right, title and interest in and to its needle free technologies to HNS International Inc. ("HNS"). The purchase price was $750,000 in cash. On April 26, 2004, the Company acquired all the stock of Cathay Merchant Group Limited ("CMC") to pursue merchant banking projects in China, including but not limited to, trade finance, representation of American and European companies with respect to Chinese investments, and strategic investments for its own behalf and on behalf of clients. The purchase price for this transaction was $50,000 in cash. The following discussion and analysis of the results of operations and financial condition of the Company for the nine months and three months ended April 30, 2004 should be read in conjunction with the consolidated financial statements and related notes included in this quarterly report, as well as the Company's most recent annual report on Form 10-KSB for the fiscal year ended July 31, 2003 filed with the U.S. Securities and Exchange Commission (the "SEC"). RESULTS OF OPERATIONS - NINE MONTHS ENDED APRIL 30, 2004 Consolidated net product sales ("sales") were $39,000 for the nine months ended April 30, 2004, compared to $65,000 for the nine months ended April 30, 2003, a decrease of $26,000, or 40%. The decrease in sales through the Company's distribution partners continues to reflect the Company's change in strategic focus and the effect of the cessation of most sales and marketing activities for the needle free business, including advertising and co-marketing expenditures in prior fiscal year. Such sales and marketing expenditures have not proven to be effective in generating product sales, and the Company made the strategic decision to cease all other sales and marketing activities relating to the Company's needle-free business. The Company sold all of its remaining inventories to HNS in January 2004. As a result of our acquisition of CMC, we will be refocusing our business to pursue merchant banking projects in China. We do not expect to generate significant revenue from these operations in the near term as it is in the development stage. Cost of sales for the nine months ended April 30, 2004 was $74,000, as compared to $70,000 in the nine months ended April 30, 2003. The negative gross margin results from the production cost of the consumable components of the Company's products (the polycarbonate plastic ampules and vial adapters) which is in excess of the respective selling prices in the current fiscal period. Selling, general and administrative expenses for the nine months ended April 30, 2004 were $2,417,000, compared to $2,358,000 for the nine months ended April 30, 2003. The increase reflects payment of $375,000 for reimbursement of expenses and administrative and management fee to MFC. 9 Research and development expenses decreased to $0 for the nine months ended April 30, 2004 from $212,000 for the nine months ended April 30, 2003 as the Company ceased its research and development activities for our needle-free business in February 2003. The Company's income tax benefit for the nine months ended April 30, 2003 was $738,000. The prior tax benefit was based on the Company's ability to carry back the operating losses incurred to recapture a portion of the taxes paid in fiscal year 2001. The Company recorded no income tax benefits in the current year. The Company cannot carry back fiscal 2004 losses and determined that it does not have sufficient taxable income available for future carry forward. Therefore, the Company believes it is appropriate to record a valuation allowance against its Federal and State deferred tax assets. RESULTS OF OPERATIONS - THREE MONTHS ENDED APRIL 30, 2004 Consolidated net product sales ("sales") were $0 for the three months ended April 30, 2004, compared to $14,000 for the three months ended April 30, 2003. The Company ceased sales and marketing activities for its needle-free business in January 2004. The Company sold all of its inventories to HNS in January 2004. Cost of sales for the three months ended April 30, 2004 was $0, as compared to $19,000 in the three months ended April 30, 2003. Selling, general and administrative expenses for the three months ended April 30, 2004 were $373,000, compared to $643,000 for the three months ended April 30, 2003, a decrease of $270,000, or 42%. The Company paid $225,000 for reimbursement of expenses and administrative and management fee to MFC for the three months ended April 30, 2004. Research and development expenses decreased to $0 for the three months ended April 30, 2004 from $41,000 for the three months ended April 30, 2003 as the Company ceased its research and development activities for the needle-free business in February 2003. The Company's income tax benefit for the three months ended April 30, 2003 was $197,000. The prior tax benefit was based on the Company's ability to carry back the operating losses incurred to recapture a portion of the taxes paid in fiscal year 2001. The Company recorded no income tax benefits in the current year. The Company cannot carry back fiscal 2004 losses and determined that it does not have sufficient taxable income available for future carry forward. Therefore, the Company believes it is appropriate to record a valuation allowance against its Federal and State deferred tax assets. LIQUIDITY AND CAPITAL RESOURCES At April 30, 2004,the Company had working capital of $11.0 million, compared to working capital of $12.4 million at July 31, 2003. The decrease of approximately $1.4 million resulted primarily from the net effect of the Company's operating losses for the nine months ended April 30, 2004, which was partially offset by proceeds received from the exercise of stock options and proceeds from sale of property and equipment. The Company has entered into a five-year $20.0 million Revolving Credit Facility with MFC. For additional information regarding our Revolving Credit Facility please see Note 1 to our interim financial statements included in this Form 10-Q. In order to complete the proposed business plan for the international merchant banking activities, the Company believes that additional capital will be required. The Company is considering a number of financing alternatives. The Company is also seeking investments in or acquisitions of companies, technologies or products in related or other lines of business. There is no assurance that management will find suitable opportunities or effect the necessary financial arrangements for such investments or provide the working capital needed for the acquired activities. ITEM 3. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 10 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 22, 2003, Marcus R. Rowan, the Company's former Chief Executive Officer, and Mark Myers, the Company's former President, brought claims against the Company in the District Court of Dallas County, Texas (the "Texas Litigation") alleging breach of contract for failure to pay back wages, severance payments, accrued but unpaid vacation and certain health and welfare benefits under the terms of their respective employment arrangements. In addition, the plaintiffs alleged defamation as it relates to their dismissal from the Company "for cause." On October 31, 2003, the Company commenced an action against its former directors, officers and/or employees James R. Gavin, Harry P. Yergey, Mr. Rowan and Mr. Myers in the Court of Chancery for the State of Delaware (the "Fiduciary Action") alleging claims for breach of fiduciary duty and breach of contract. On December 17, 2003, Mr. Rowan and Mr. Myers commenced an action against the Company in the Court of Chancery for the State of Delaware (the "Advancement Action") demanding advancement of attorneys' fees and costs incurred by them in defense of the Fiduciary Action. On January 29, 2004, the Company dismissed the claims in the Fiduciary Action against Mr. Gavin and Mr. Yergey without prejudice. On May 28, 2004, the Company entered into settlement agreements with each of Mr. Rowan, Mr. Myers, Mr. Gavin and Mr. Yergey regarding the Texas Litigation, the Fiduciary Action and the Advancement Action. Under the terms of each settlement agreement, the Company and Mr. Myers agreed to release each other for all claims either party could assert against the other party relating to any relationship such persons had with the Company as an employee, officer, director, indemnitee or stockholder as of May 28, 2004. The parties stipulated to dismissal of the Texas Action, the Fiduciary Action and the Advancement Action with prejudice. In the ordinary course of conducting its business, the Company may become subject to litigation and claims regarding various matters. There exists a reasonable possibility that the Company will not prevail in all cases. Although sufficient uncertainty exists in these cases to prevent the Company from determining the amount of its liability, if any, the ultimate exposure upon the resolution of any such litigation or claims is not expected to materially adversely affect the Company's financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K (a) Exhibits Exhibit 31.1 - Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 - Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: On November 20, 2003, the Company filed a Report on Form 8-K to disclose the change in auditors. On December 19, 2003, the Company filed a Report on Form 8-K in relation to a press release announcing the Company's agreement with HNS International, Inc. related to sale of needle-free business. On January 10, 2004, the Company filed a Report on Form 8-K in relation to a press release announcing the sale of needle-free business. On April 20, 2004, the Company filed a Report on Form 8-K in relation to the change in the Company's board of directors. 11 On April 26, 2004, the Company filed a Report on Form 8-K in relation to acquisition of Cathay Merchant Group Limited and the Revolving Credit Facility. 12 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EQUIDYNE CORPORATION Dated: June 14, 2004 By: /s/ Lewis Cheung ---------------- Lewis Cheung Chief Executive Officer, President and Chief Financial Officer 13 EX-31.1 2 j0805601exv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lewis Cheung, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Equidyne Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: June 14, 2004 By: /s/ Lewis Cheung ----------------- Lewis Cheung Chief Executive Officer and Chief Financial Officer 14 EX-32.1 3 j0805601exv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Equidyne Corporation (the "Company") hereby certifies, to such officer's knowledge, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended April 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: June 14, 2004 By: /s/ Lewis Cheung ----------------- Lewis Cheung Principal Executive Officer and Principal Financial Officer 15 -----END PRIVACY-ENHANCED MESSAGE-----